The Palestinian Authority responded with muted enthusiasm to an announcement
from the Israeli leadership on Wednesday that it will release $200million
(£127 million) in frozen Palestinian tax revenue.

Benjamin Netanyahu, the Israeli prime ministerPhoto: GETTY

By Phoebe Greenwood in Jerusalem

3:11PM GMT 30 Nov 2011

Israel has withheld tax money paid by and owed to the Palestinians since the Palestinian leadership applied for membership to the United Nations’ cultural agency UNESCO in October, which amounts to £100million a month and makes up two thirds of the Palestinian Authority’s domestic revenue.

A spokesman for Salam Fayyed, the Palestinian prime minister and former IMF economist, said there would be no official Palestinian response to the funds’ release until the money had been transferred.

“All we know is what we have seen on the news. The Israelis have not contacted us nor have we received the money,” the official said on Wednesday afternoon.

“The situation here remains very difficult. Unless the transfer is made quickly, we will not be able to pay government salaries and many of other dues, including suppliers of medical equipment and independent contractors working on infrastructure projects.”

Mr Fayyad has spoken candidly over the past week about the financial mire his administration is in. Aside from the tax revenue withheld by Israel, the Palestinian Authority is struggling with a $300 million shortfall in money pledged but not paid by international donors. Most of these donors are understood to be Arab states.

Even with the $200million in taxes Israel has withheld, the Palestinian Authority’s financial woes will be far from solved.

For Benjamin Netanyahu, withholding Palestinian taxes has also been a lose-lose game, earning him criticism at home and abroad. The Israeli prime minister has been keen to answer increasingly critical calls from the international community to release the money but has faced fierce opposition from his foreign minister, Avigdor Lieberman, who threatened to dissolve the government coalition should the transfer were to go ahead.

Mr Liberman withdrew this threat on Sunday but remains a steadfast opponent of paying the Palestinians. Following talks between Mahmoud Abbas, the Palestinian president, and Hamas leaders in Cairo earlier this week, he claimed the tax revenue would "encourage and commemorate terror."

Despite this opposition, Mr Netanyahu decided to release the funds on Wednesday having sought the advice of his eight most senior cabinet ministers. A spokesman for the Israeli prime minister said the tax payments for both October and November should be with the Palestinians within the next two days.